The feel good rally predicated on last weekend’s better-than-expected retail activity soon fizzled in yesterday’s trading, and structured financial product woes came to the fore again. The big casualties were the homebuilders and many mortgage related financials, with Freddie Mac (FRE) and Fannie Mae (FNM) suffering ignominiously again.

News that HSBC, the UK based global bank, is abandoning its SIV shenanigans and taking all of the assets and obligations onto its balance sheet will add further pressure to Citigroup and JP Morgan who have still to get their super SIV scheme off the ground. The injection of $7.5 billion in new capital to Citigroup by a sovereign wealth find from Abu Dhabi could just have been coincidental timing, but once again there is a slightly scary sense that the conceptual edifices created by financial engineering are groaning again in the wake of further aftershocks triggered by the CDO meltdown.

One of the more disconcerting developments was the performance of the Russell 2000 (^RUT) which broke below the mid-August low and closed at its lowest level in over a year.



The S&P 500 (^SPC) came within a whisker of the mid-August closing low and my suspicion is that the intraday low of August 16 of 1370 will be on the radar screen in the next few sessions. A failure to hold at this level would almost certainly trigger panic institutional liquidations and we could see even more money move into the Treasury complex which, contrary to our call yesterday, proceeded to knock down another sixteen basis points to close decisively below the 4% level.



In overnight trading the Nikkei managed to mount a late rally to erase a loss which would have seen it register another multi-period low but the Hang Seng Index (^HSI) was unable to hold on to most of Monday’s gains which had enabled the index to regain the 200-day EMA, and the index gave back 1.5%.

The Shanghai index (^SSEC) also dropped a further two percent and the index is now closing in on a twenty percent decline since its October 16 historic high.

As a reminder to readers, but not specifically with any short recommendation at present, there is a way to gain exposure to Chinese stocks generally through the exchange traded fund FXI.



TRADE OPPORTUNITIES/SETUPS FOR TUESDAY NOVEMBER 27, 2007

The patterns identified below should be considered as indicative of eventual price direction in forthcoming trading sessions. None of these setups should be seen as specifically opportune for the current trading session.

Super Value (SVU) peeked above a line of resistance on heavy volume and the chart pattern suggests that a breakout is imminent.



Lazard (LAZ) ran into resistance at the intersection of all three moving averages.



Loews Carolina (CG) has a cluster of long upper shadows and yesterday’s rather striking shooting star, as well as the MACD negative divergences which are quite evident, looks promising on the short side.



Clive Corcoran is the publisher of TradeWithForm.com, which provides daily analysis and commentary on the US stock market. He specializes in market neutral investing and and is currently working on a book about the benefits of trading with long/short strategies, which is scheduled for publication later this year.

Disclaimer
The purpose of this article is to offer you the chance to review the trading methodology, risk reduction strategies and portfolio construction techniques described at tradewithform.com. There is no guarantee that the trading strategies advocated will be profitable. Moreover, there is a risk that following these strategies will lead to loss of capital. Past results are no guarantee of future results. Trading stocks and CFD's can yield large rewards, but also has large potential risks. Trading with leverage can be especially risky. You should be fully aware of the risks of trading in the capital markets. You are strongly advised not to trade with capital.